The inflation-adjusted value of the minimum wage is lower today than it was in 1968. If the value of the minimum wage had kept pace with average wages since then, it would be $10.50 today. If it had increased alongside productivity, it would be $18.75 today. And if it had increased at the same rate as the wages of the top 1.0 percent, it would be over $28 per hour.

If Obama gets his (not very fervent) wish to raise the federal minimum wage by $2 an hour over two years that should shift an incredibly small (almost unbelievably small) ONE-QUARTER OF ONE PERCENT per year of overall income in this country from the top 80 percentile to the bottom 20% …

Which is about what California’s raise from $8 an hour to $10 an hour spread over two years will also achieve. (California income numbers only 5% higher than national averages so the comparison should hold.)http://money.cnn.com/2013/08/29/news/economy/gdp-report/
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ABYSMAL ASSUMPTIONS:

$9 an hour is about the 15 percentile wage. 5% of work force at minimum wage. So 20% of national workforce gets a raise to $9 an hour.

To do our average (half) raise math we will add 5% — to account for the 5% at the minimum wage who get a full raise.

25% of the national workforce = 35 million people. Average pay raise (half the dollar per year raise) 50 cents an hour. Assume a 2000 hour work year. 35 million X average $1,000 raise = $35 billion out of a $15.8 trillion dollar economy = .0022151 = about one-quarter of one-percent price rise — or shift of income from top to bottom per year.

Nearby wages should not be pushed up too much. In societies with high minimum wages (e.g., the US in 1968) even the median wage is not that much higher.

I have no idea how labor productivity has changed for those earning the minimum wage, but I do believe that research has shown that labor productivity for the top 1% has increased fairly dramatically – probably not as much as compensation, but at a higher growth rate than *average*.

M.jed,
Allow me to intrude myself — on my obsession. The overall productivity of the economy is what generally drives compensation — or should. Example: barbers in France presumably do a lot better than barbers in Poland because France has a lot more to pay barbers with.

PS. I doubt whether the productivity of ballplayers, TV news anchors and CEOs has risen much — the latter certainly not 20X (!) since 1973 or whatever the so-called “inequality” (not dramatic enough a word for me) started. In my day the highest paid pro football player, Joe Namath, made about $600,000 a year in today’s money — considered a staggering sum. In the 1970s, top NBC news anchor, John Chancellor, earned about $400,000 a year in today’s money. Recent top ABC anchor, the late Peter Jennings, was earning $10,000,000 a year.

My labor market metaphor for all this is that if you squeeze a toothpaste tube at the bottom, it all comes out the top. At the bottom of today’s US labor market it is all cave in when squeezed — back pressure gradually growing as you go up the percentile wage scale — equalizing fairly between 90 percentile and somewhere along 97-98-99 (assumed because these wages have maintained even SHARE of income since the “Great Wage Depression” slowly took off around 1973) — and then all the extra goodies squeezed out of the weaker bargainers (or non-bargainers) naturally come out the top. Simple physics.

I don’t blame the top 1% for doing what they are supposed to do — bargaining effectively for what is there. I blame the bottom 90% for not even knowing what is hitting them and not trying to do anything about it. The ballplayer and the anchor and even the CEO aren’t smart enough to exploit fast food workers to make their millions — most probably wouldn’t consciously try.

marmico

November 30, 2013 10:22 pm

The overall productivity of the economy is what generally drives compensation — or should.

Labor productivity of food services and drinking places has risen by 0.6% annually since 1987. Labor compensation has risen 5.1% likewise. Compensation has significantly outpaced productivity in that sector.

Your chart must be including inflation and maybe even yearly population growth (1%) in the yearly gains — even then it is hard to understand when median wages have hardly budged for 40 years. Don’t have the knowledge to tell you exactly what is wrong. However:

I don’t have issues with the minimum wage being annually indexed to the inflation rate like some states do. It is arguable as to which inflation rate to use. Since 1987 (the start year of the linked labor productivity chart), the federal minimum wage has tracked with lags the inflation rate. But to expect that a worker in a low productivity sector (~15% for fast food workers) should receive mandated additional compensation increases based on average productivity (~65%) seems problematic.